Briefly-
- RBA exceeded expectations in rate hikes.
- Traders saw AUD/USD moving higher.
- US interest rates remain higher.
One of the central banks expected to announce financial policy this week surprised market players with higher than expected rates. The Reserve Bank of Australia hiked rates by 50 basis points, whereas investors anticipated a 25 basis point rate surge.
That market the 2nd time RBA raise fund rate in 2022, now standing at 0.85%. The number might seem high considering rates during the COVID pandemic, but the historic standpoint shows it at the lowest mark ever.
The Australian financial situation remains accommodative when calculating adjusted inflation interest rates. The nation’s inflation stands at 5.1%, while the ‘real’ interest rate stands well beneath zero.
Why RBA Exceeded Expectations in Rate Hikes
Inflation remains the primary reason behind the 50 basis point rise. Ukraine conflict & pandemic supply bottlenecks catalyzed upswings in Australia’s services and goods costs.
Furthermore, local floods early this year added pressure on the prices. Therefore, the central bank saw the need to exceed expectations by market players, showing its move to curb inflation at current levels.
Though inflation raised, it stays lower than inflation rates recorded in other advanced economies. And that’s why markets seem unbothered with RBA’s move, as the AUD-USD exchange rate surged on the updates before reversing all the acquired gains.
AUD-USD Retains Bearish Trends
Updates about RBA lifting cash rates more than expected saw AUD pairs noting upticks. However, the AUD-USD exchange rate erased the surge within no time.
The currency maintains downtrends and needs a 24hr closing beyond 0.76 to cancel the bearish bias. However, the trend remains bearish as the pair hovers within the channel.
Regardless of the surprise move, individuals know that the US Fed will unveil its monetary policy in the coming week. Investors await a 50 basis point, meaning the cash rate will hit 1.5% in the US, higher than Australia’s 0.85%. Thus, the rate differential still leans toward a steady United States dollar.
What do you think about the above content? Feel free to comment in the section below.